Surcharging continues despite reforms

Last updated: 08 December 2014

Excessive credit card surcharging first came on the scene way back in 2003, and it was supposed to have come to an end nearly two years ago.

In March 2013, the federal payment system regulator, otherwise known as the Reserve Bank of Australia (RBA), gave credit card companies the green light to clamp down on merchants who gouged their customers with massive credit card surcharges.

The airlines have long been some of the worst culprits. Despite the RBA ruling, they still are.

The RBA ruling was a corrective measure, since it was the regulator that legalised surcharging in the first place. The regulator had decided to let market forces take care of any excessive behaviour: consumers could simply avoid the worst surchargers and take their business elsewhere. For travellers especially, it didn't work out that way.

How can you avoid excessive surcharging when all the major airlines are doing it?

The regulator reconsiders

In 2011 the RBA had a rethink and said it had noticed a troubling increase in "surcharging well in excess of card acceptance costs". The average costs are less than one per cent for Visa and MasterCard (0.86% to be exact) and about two per cent for American Express and Diners Club cards. Airlines like Tiger Airways have gone a tad beyond that, applying a 1479% mark-up, for instance, on a $132 ticket as recently as January 2014.

The 2013 RBA change put the onus on the credit card companies to rein in the likes of Qantas, Jetstar, Virgin Australia and Tiger Airways – all of whom have been serial surchargers.

Enforcement still unclear

How the clampdown would work was not specified. But in May 2013 Visa's country manager for Australia, Vipin Kalra, told us it had enacted a surcharging compliance program and was working with banks to identify surchargers. "If their surcharges are found to be excessive in relation to their costs, they will have a period of time to comply with the rules," Mr Kalra said.

But he made it clear that credit card companies couldn't bring an end to surcharging on their own. "Visa is not a regulator, but we're doing what we can within the current framework to bring down the current high levels of surcharging. However, it is not our role nor do we have powers to achieve remedies for individual consumer complaints. Stronger consumer regulation and a better avenue for consumers to seek individual redress may be required."

Visa speaks

We talked to Visa again in November 2014 and were told the company is now pushing for a surcharge ban after an unsuccessful effort to bring merchants and financial institutions into line.

"It is clear the current system is not working," a spokesperson said. "If we are going to see any real reduction in the level of surcharging, there needs to be clearer limitations on the reasonable cost of acceptance and enforcement by a public agency. Consumers should not be penalised for choice at the checkout when they pay with a credit or debit card."

Visa made the same point in its 2014 submission to the government's Financial System Inquiry. And consumer research commissioned by Visa "shows there is strong support for appointing a government agency to enforce existing limits on surcharging", the spokesperson said.

Surcharging charges ahead

When we did a spot check of airline surcharges in May 2013, two months after the RBA ruling, the margins for Qantas, Virgin Australia, Jetstar and Tiger were still well above card acceptance costs – 4.3%, 7.9%, 4.2% and 17%, respectively – on a a variety of flights to and from Brisbane for a family of four.

This is how the numbers looked back then for a family of four on the flights we checked in May 2013:

Qantas $7.70 per person per booking, or a total of $30.80, for a domestic flight from Bundaberg to Brisbane return. Fare without surcharge: $712; fare with surcharge: $742.80.

Virgin Australia $7.70 per person per booking, or a total of $30.80, for a domestic flight from Brisbane to Mackay return. Fare without surcharge: $392; fare with surcharge: $422.80.

Jetstar $25 per person, or a total of $100, for an international flight from Brisbane to Denpasar return. Fare without surcharge: $2362.80; fare with surcharge: $2462.80.

Tiger Air $8.50 per person per flight, or a total of $68, for a domestic flight from Brisbane to Sydney return. Fare without surcharge: $399.60; fare with surcharge: $467.60.

We also surveyed 1045 consumers in May 2013, asking them to weigh in on their recent surcharging experiences. Of the respondents who had used their credit card in the past three months, 44% said they'd been hit with a surcharge.

In June 2013, we delivered a petition calling for an end to excessive surcharging signed by over 6700 consumers to then Assistant Treasurer David Bradbury.

Our latest check

In January 2014, we did another check on the airlines. Airline mark-ups were still well above average merchant service fees, especially for cheaper tickets:

Qantas 339% for a $197 ticket.

Virgin Australia 412% for a $185.70 ticket.

Jetstar 2312% for an $87 ticket.

Tiger 1479% for a $132.90 ticket.

And in November 2014, we took yet another look at airline surcharging. This time the scenario was a group of four flying from Sydney to Melbourne return.

Little had changed, except that surcharging was described in a variety of new ways. Virgin, for instance, calls its surcharge a "safety and security charge" as well as a "booking and service fee", while Jetstar has stuck with "booking and service fee".

The current state of airline surcharging

Qantas

$7.00 per person per booking, or a total of $28 for our party of four. Fare without surcharge: $1240; fare with surcharge, $1268. Credit card transaction mark-up above the average card acceptance fee: 168%.

Virgin Australia

$7.70 per person per booking, or a total of $30.80. Fare without surcharge: $1160; fare with surcharge, $1190.80. Credit card transaction mark-up above the average card acceptance fee: 216%.

Jetstar

$8.50 per person per sector (or per individual flight), or a total of $68.00. Fare without surcharge: $632; fare with surcharge, $700. Credit card transaction mark-up above the average card acceptance fee: 1180%.

Tiger

$8.50 per person per sector (or per individual flight) for online bookings, or a total of $68. (If you book over the phone, the surcharge goes up to $15.) Fare without surcharge: $560; fare with surcharge, $628. Credit card transaction mark-up above the average card acceptance fee: 1345%.

How to avoid paying a credit card surcharge

The airlines do offer some fee-free payment options, but they don't make them easy to use.

Qantas charges an extra $7.00 per passenger for every credit card or debit card booking unless you pay by one of the following methods.

BPAY – but only if you buy your ticket seven days or more before your flight's scheduled departure.

Debit card – but only if you buy your ticket within seven days of your flight's scheduled departure.

Qantas UATP cards – issued by airlines to corporate customers and generally not available to casual travellers.

Cash, cheque or EFTPOS – but only when paying at Qantas airport locations, Qantas Travel outlets and travel agents (and travel agents will likely charge their own card payment fees).

Credit voucher from the airline.

Virgin charges an extra $7.70 per passenger for every credit card or debit card booking, and it also hits you with the same surcharge if you use PayPal. Your options for avoiding surcharges are:

POLi – the online payment service is currently only available from Australian or New Zealand personal bank accounts when booking from the country of origin. And Virgin won't let you purchase its travel insurance offer through POLi.

Virgin's travel bank service or a gift voucher.

Jetstar charges an extra $8.50 per passenger per sector (or per individual flight) for every credit card, debit card or PayPal booking (and $12.50 for international flights) unless you use one of the following payment methods:

Jetstar MasterCard, Jetstar Platinum MasterCard or Jetstar Vouchers.

POLi – not available on the Jetstar Mobile website.

Direct Deposit via internet banking – available up to 14 days prior to departure only. Not available on the Jetstar Mobile website.

Tiger also charges an extra $8.50 per passenger per sector (or per individual flight) for every credit card or debit card booking (and $15 for international flights) unless you use the following payment method:

Australian-issued MasterCard debit card.

Hope on the horizon?

The final report of the government's Financial System Inquiry takes a tough stand against excessive credit card surcharging, but it stops short of calling for effective regulation and enforcement. Until that happens, the long reign of surcharging seems sure to continue.

"We already have a rule that limits sky-high credit card surcharges, but the problem is no-one has the role or power to enforce it," CHOICE CEO Alan Kirkland said.

"Without an effective enforcement system, consumers are destined to continue to pay excessive surcharge fees. Businesses like Qantas and Virgin continue to charge card fees out of all proportion to the costs of processing. Only an effective regulator and strong penalties will make them change their ways," Mr Kirkland said.